Research Report ABOUT Style The global branding report by Stacy Baker STYLE ABOUT AUTOMOTIVE ABOU ABOUT STYLE ABOUT S ABOUT FOOD ABOUT ABOUT DRINK AB ABOUT AUTOMOTIVE ABOU ABOUT STYLE ABOUT ABOUT FOOD ABOUT ABOUT DRINK AB AB ABOUT Publishing Group © ABOUT Publishing Limited 2002 The global branding report by Stacy Baker ABOUT AUTOMOTIVE ABOU ABOUT Publishing Group ABOUT STYLE ABOUT S ABOUT FOOD ABOUT 21 Noel Street ABOUT DRINK AB ABOUT AUTOMOTIVE ABOU London W1F 8GP ABOUT STYLE ABOUT ABOUT FOOD ABOUT United Kingdom ABOUT DRINK AB AB ABOUT Publishing Group The global branding report Contents © ABOUT Publishing Limited 2002 Contents ii The author 1 Introduction 2 Chapter 1: Brands and their bottom line 6 Chapter 2: The impact of September 11th 8 Chapter 3: Consumer trends 9 Chapter 4: Branding trends 12 Chapter 5: Brand strategy 19 Chapter 6: Licensed products 22 Chapter 7: Luxury brands 25 Chapter 8: Luxury trends 26 Chapter 9: Company profiles: - Nautica Enterprises - Polo Ralph Lauren - Calvin Klein - Giorgio Armani - Kenneth Cole Productions - LVMH Moët Hennessy Louis Vuitton - Tommy Hilfiger - Zara - Gucci - Guess? - Gap - Liz Claiborne 47 Chapter 10: Counterfeiting - Case study: 3M Thinsulate 51 Chapter 11: Asian branding - Japan 53 Chapter 12: Conclusions Appendix Country-by-country list of US vertical retailers/brands with international operations The global branding report i © ABOUT Publishing Limited 2002 Contents List of tables Table 1 Polo Ralph Lauren: retail sales outlets, 2002 Table 2 Trademark protection loss: apparel and footwear (% loss and $ value) List of figures Figure 1 Nautica’s sales, 1996-2002 Figure 2 Polo Ralph Lauren revenue, 1999-2002 Figure 3 Polo Ralph Lauren wholesale revenue, 1999-2002 Figure 4 Polo Ralph Lauren wholesale income, 1999-2002 Figure 5 Polo Ralph Lauren retail revenue, 1999-2002 Figure 6 Polo Ralph Lauren retail income, 1999-2002 Figure 7 Polo Ralph Lauren licensing revenue, 1999-2002 Figure 8 Polo Ralph Lauren licensing income, 1999-2002 Figure 9 Kenneth Cole revenue, 1999-2001 Figure 10 LVMH sales by region, 2001 Figure 11 LVMH revenue, 1999-2001 Figure 12 Tommy Hilfiger net revenue, 1997-2002 Figure 13 Tommy Hilfiger net income, 1998-2002 Figure 14 Zara sales, 2000-2001 Figure 15 Guess? revenue, 1998-2001 Figure 16 Gap revenue, 1998-2001 Figure 17 Liz Claiborne revenue, 1997-2001 ii The global branding report Chapter 1: Brands and their bottom lines © ABOUT Publishing Limited 2002 Chapter 1 Brands and their bottom lines Top performers are as diligent Not surprisingly, brands with the highest overall success in terms of with their ability to manage marketing, brand loyalty, relationship to consumers, evolving brand behind-the-scenes production statements, etc., are also those with the most impressive bottom lines. This issues as they are with savvy year is no exception: American brands Tommy, Kenneth, Ralph and Jones, marketing strategies as well as European powerhouses like Gucci, LVMH and Armani, continue to perform exceptionally strongly. While financial success seems to be the obvious result of strong branding concepts, translating a lifestyle message to the bottom line is far from easy. Top performers are as diligent with their ability to manage behind-the- scenes production issues as they are with savvy marketing strategies. Fuelling the success of the apparel brands has been a high level of consumer spending, supported by even higher levels of credit card debt. Consumers seem oblivious to media talk of economic slowdown, recession and hard times and continue to spend, to the obvious benefit of companies such as Visa, Mastercard and American Express. The result for many apparel companies has been double-digit revenue growth and positive predictions for the economic climate throughout 2002. Gucci tops its competition with The leading performers in the apparel industry over the last five years are a five-year geometric growth the big names we all know. Gucci, Ralph Lauren, Tommy Hilfiger, Kenneth Cole and Jones Apparel have all been able to achieve growth in cash flow from operations that are far in excess of that of the overall apparel industry. Gucci tops its competition with a five-year geometric growth in cash flow from operations of 67%, says Steven Sommers, global apparel research analyst for US-based Thompson Financial. This means that the company is generating roughly 13 times the cash it had been five years ago—strictly through internal means. “The obvious challenge for an apparel company is to produce clothing that appeals to its audience of consumers,” Sommers says. “These companies (Gucci, Ralph Lauren, Tommy Hilfiger, Kenneth Cole and Jones Apparel) not only satisfy consumers’ needs, but they also shape consumers’ needs through their well-orchestrated marketing campaigns. The less obvious ingredient to a financially successful retail brand is the matching of production levels and consumer demand.” Nautica is up 40% since the Specifically, brands such as Kenneth Cole, Nautica, Polo Ralph Lauren, beginning of 2001 while Tommy Tommy Hilfiger, Liz Claiborne and Guess? are currently performing Hilfiger is up 55% year-to-date extremely well. As a whole, these design houses had an excellent year in fiscal 2001 with their stocks all experiencing price appreciation of 25% or more, says Sommers. “Nautica was up as high as 40% throughout 2001 while Tommy Hilfiger was up as high as 55% despite ending on a low note (just 2% revenue growth for fiscal 2002)” he says. Moreover, Sommers’ early predictions for 2001 earnings outlook for Nautica, Liz and Ralph Lauren were quite good relative to the market. All three were expected to generate double-digit percentage earnings gains for calendar year 2001—which each succeeded in doing at 10.3%, 11.1% and 19.3% respectively—while the market as a whole is expected to be down 4%. The global branding report 5 Chapter 2: The impact of September 11 © ABOUT Publishing Limited 2002 Chapter 2 The impact of September 11 While there has been much talk While there has been much talk about the impact of September 11 on US about the impact of September brands and the global fashion economy, in reality nothing really changed, 11 on US brands and the global says David Wolfe, trend analyst for New York-based Doneger Group. fashion economy, in reality “Spring 2002 was already done and it looked optimistic and colourful, so nothing really changed lots of folks thought that was a result of 9/11, but it wasn’t,” Wolfe says. “Fall 2002 looks fairly dismal.” Wolfe says that we are still feeling the effects because leading fashion designers “have their heads in the sand and insist on ‘business as usual,’” which means they are still focusing on clothes for kids or fashionistas. Wendy Liebmann, founder of WSL Strategic Group, echoes Wolfe’s thoughts, saying the economic downturn was imminent, a natural course of market events on the heels of six years of strong consumer spending. Liebmann’s most recent book “How America Shops,” a biannual survey of American shopping behaviours, shows that even if the terrible events of September 11 had never happened, many retailers would still be on the brink. She says that after several years of heavy shopping, American consumers “simply have enough stuff” (a concept compounded by post-9/11’s resurgence to conservative values). “There’s been a very telling progression since September 11,” Liebmann said in an interview with Fast Company. “In the first few days, of course, consumers simply shopped to stock up for a war. Soon after, though, they returned for a different reason. It was very much about feeling a need to be around other people. You could walk through the malls and see plenty of people—but no one was actually shopping. And you’d get to the food court, and there would be people lining up to eat. The mall was the town square where people came together. “Which raises an important truth: Shopping in the United States isn’t purely about need. It’s about our emotional connection to who we are and how we live. Shopping is so much a part of our lives in this country that it’s both a necessity and therapy: The way we show we care is to shop. So in the weeks that followed, we began to see mothers and children in the malls shopping for school clothes. Friends, arm-in-arm, shopping together. It was all about holding on to something or someone you could recognise as safe.” Emotional need was not the only thing getting shoppers out of the house and into the checkout lines. Retailers marked everything down—significantly down. It was a great time to save money, despite the fact that people were losing their jobs and the economy was tumbling, says Liebmann. Retailers did everything they Retailers did everything they could to lure shoppers back into the stores to could to lure shoppers back into spend money, but ultimately the tide turned back to the mindset that the stores to spend money, but Americans had before the terrorist attack. People were tired of spending ultimately the tide turned back money, their closets were full and basically they felt that they had to the mindset that Americans everything they needed (how many pairs of jeans does someone really had before the terrorist attack need?). Liebmann says getting consumers to part with cash today means coming up with something very innovative, selling it extremely cheaply or putting it in an amazing environment. The global branding report 6 Chapter 9: Company profiles © ABOUT Publishing Limited 2002 Chapter 9 Company profiles The following company profiles feature some of the top global brands based on financial prowess, lifestyle statements, longevity and recognition. Nautica Enterprises Nautica Enterprises has grown Nautica Enterprises has grown from a small apparel business with six styles from a small apparel business to of men’s outerwear in 1983, to a US$690 million brand powerhouse with a US$690 million brand seven divisions and multiple licenses, ranging from men’s sportswear and powerhouse activewear to home furnishings and jeanswear.